Are You Missing Out On The Benefits Of A Strategic Financial Plan?

If you’ve ever wondered if you’re doing enough in your strategic process, there is a highly beneficial piece that is often overlooked. Strategic plans commonly look out three to five years, yet financial plans are much shorter term. That means that long-term strategies are created without connecting them to potential long-term financial effects, which is a missed opportunity. 

Looking out short-term doesn’t cover most of the impacts of a longer-term strategy, such as expected increases in membership resulting from more sophisticated usage of data or additional loan growth from planned geofencing capabilities. To be clear, this is not a long-term budget. It’s the result of a non-siloed, collaborative effort where management thinks through what implementing the strategic directions and initiatives could cost over time as well as what they could produce, be it member growth, loan growth or just remaining relevant without any expected boost in revenue. While finance is typically involved in modeling the numbers, this should not be thought of as a finance function; it’s a collaboration. 

The question to answer is, Does the strategic plan result in our desired financial performance? Let’s take the method for answering this question in phases:

• Before considering the impact of the strategy, what does financial performance look like if current trends—such as loan growth, deposit growth and operating expense increases—continue? If the view is not good, it can be helpful for everyone to understand how necessary the successful implementation of the strategy is.
• After layering on the timing and financial impacts of the strategy, does it result in desired financial performance? If not, it’s best to know now so other ideas can be considered.
• Whether environmental forces are included in the base plan depends on how confident you are that they will happen. Factors that you are uncertain about can be built into the what-ifs.
• Understand the risk embedded in the balance sheet structure at the end of the plan to make sure it is within the organization’s appetite for risk.

Next, understand what could get in the way of your desired financial performance. Create a series of what-ifs to represent alternative paths that capture major factors:

• Create what-ifs for alternative results from the strategic directions and initiatives. For example, if the plan includes a significant increase in loan growth resulting from improvements to the lending process, a what-if could show what would happen if the expenses for the initiative remained the same but only resulted in marginal loan growth. The purpose is not to lower the bar, but to understand up front which assumptions have the highest impact, which can help prioritize initiatives. Seeing the numbers helps everyone get behind the effort.
• Environmental factors, such as market interest rate movements or shifts in overall loan demand can be captured in what-ifs. For example, a what-if showing a potential recession might factor in lower loan growth, higher deposit growth and higher provision for loan loss.

When presenting to the board and other stakeholders, limit the scenarios to the ones that tell the story and highlight major concerns and opportunities. So that the discussion stays strategic, keep the information provided for each scenario to a brief description and key measures.

Strategic financial planning links the longer-term strategy to the financial implications of the strategy. It can help deepen stakeholders’ understanding of the strategy, foster robust conversation, uncover hidden assumptions, and help avoid pitfalls. It helps management think through the potential financial consequences of the strategy and, when presented to the board, deepens understanding of the strategy without bogging directors down in the details. 

Learning to think through alternative paths and see a range of potential long-term outcomes can provide strategic clarity, alignment and better grounding for decision-making. Be sure to take advantage of the opportunities strategic financial planning can provide by making it a key part of your process.

c. myers corporation has partnered with credit unions since 1991. The company’s philosophy is based on helping clients ask the right, and often tough, questions in order to create a solid foundation that links strategy and desired financial performance. c. myers has the experience of working with over 550 credit unions, including 50 percent of those over $1 billion in assets and about 25 percent over $100 million. They help credit unions think to differentiate and drive better decisions through real-time ALM decision information, CECL consulting, financial forecasting and consulting, liquidity services, strategic planning, strategic leadership development, process improvement, and project management.